Trends to Watch in 2016 as You Plan Your Investments

Posted on January 6, 2016April 3, 2017 by Capital Investment Advisors

Over the past several years making predictions about the upcoming year, I’ve noticed that every year the consensus (financial newspapers, strategists on Wall Street, etc.) defaults to “the market should do about 10 percent this year.”

As far as predictions go, that’s a relatively safe one, as a 10 percent rise is right at the stock market’s long-term historical average. So rather than offering a vanilla “10 percent rise for 2016” prediction, it’s more helpful to focus on the dominant trends that will most likely impact markets and your own investment planning in the upcoming year.

Oil stabilization

This has been wonderful for us as we fill up our gas tanks, but the fall in oil prices has wreaked havoc on the profitability of most oil- and energy-related companies. From its high, oil has dropped nearly 65 percent. Because the oil industry is a substantial component of the U.S. economy, that industry’s lack of earnings in 2015 spread to many other related industries.

However, let’s remember that oil can’t go to zero. We still use over 19 million barrels of oil per day just in the U.S. alone, and there are still more than 1.1 billion vehicles on the planet that need fossil fuel to run. Once oil prices do stabilize, the entire energy industry should begin to recover.

Stocks regain their footing

The year 2015 was a “violently flat to mostly down” one for nearly all stock categories (U.S. and international). Nearly all of us are investing for a much longer period of time than we often remember. Even if you are already retired, that doesn’t mean that you have a short investing time horizon.

Think about how far our economy has come over the past 20 years. The iPhone didn’t even exist a decade ago, and it now produces more than $150 billion in annual sales for Apple. Investors will be sorry over the next several decades if they don’t have some participation in the equity markets.

U.S. GDP climbs

If I were to give the economy a letter grade, I would assign it a B or B-.

In 2016, housing will continue to be strong, the consumer will continue to increase spending, but areas around manufacturing have a tepid outlook. Additionally, higher interest rates in the U.S. will continue to make borrowing money more expensive.

That being said, the U.S. government has not been positively contributing to the gross domestic product over the past several years. That’s about to change with the passage of Congress’s latest $1.1 trillion budget bill. The bill will add $110 billion to GDP in 2016 — that equates to more than 0.50 percent on an annualized basis. This, coupled with a healthy consumer in 2016, should deliver 2.5 percent to 3 percent GDP growth for the year.

The polls push stocks

Over the past decade, companies with the heaviest lobbying efforts in Washington, D.C., have benefited from disproportionately better top line revenue growth and increased earnings. With new faces in Washington after the November 2016 election, the lobbying deck of cards will surely be reshuffled. Some key sectors that could be significantly impacted include health care, energy, defense and infrastructure.